Guerrilla Marketing for Consultants

Special Report: 12 Experts on Pricing Your Services

Few topics inspire more curiosity than how to price professional services. Even though you can probably count the number of true pricing experts on one hand, editors at RainToday asked twelve people to weigh in on this question:

What is the one piece of advice you would give a professional service provider to maximize their fees for services?

Their answers are included in a free, 39-page report, “The One Piece of Advice You Need to Get the Fees You Deserve.”

Like any compilation, this report contains some generic stuff. But it also includes some very good advice about creating compelling value as a basis for establishing professional fees. Some of the leading thinkers in the field of professional services are represented in the report.

The report is worth a careful look. Download it here.

When Price Matters Most

I met a consultant who described her team's first meetings with a prospective client:

"The client executives spent four hours taking us through a long, consulting to-do list. They told us that solving those problems was far more important than price. We were thrilled with the opportunity, and quickly completed a proposal.

"But the client literally showed us the door when they read the proposal and the price. I haven't been able to get a return call from any of the executives since that fateful day."

It's common for clients to experience sticker shock when they see the price tag of a consulting project. With a little work, you can soften the blow.

In initial meetings, clients often say price isn't important. They are focused on getting the problem handled--now. So, clients begin by evaluating a consultant's expertise and ability to get the job done, and they push the issue of price to the back burner, at least temporarily.

Once the client gets close to making a decision, though, a subtle shift takes place. The price and risk of the project take center stage, and the consultant's expertise becomes part of the background.

It makes sense. Once a client is close to a decision, the field of contenders has been winnowed to the firms most capable of handling the work, so attention naturally moves to other factors.

You need to plan for this shift by staying close to your client, particularly at the end of the sales cycle. Tweak your message to stress the value-to-cost ratio of your proposal and show how you will manage every element of project risk. Fail to shift gears with the client, and you'll be shown the door too.

Pricing Redux: How to Dump Hourly Rates

Stroll through the zoo and you might see a multi-ton elephant tethered by a rope to a three-foot pole. The elephant has been trained to believe that it has no choice about staying in its current position.

And so it is with the hourly rate, which consultants and clients are trained to believe is the only way to price services.

But just as that elephant could break free from the pole, one collective tug by consultants in the industry and the hourly rate would be a legacy of a bygone era.

How can that be done?

Dumping hourly rates is all about reaching agreement with clients on value. If, for instance, you propose to help a client reduce indirect expenses by 2%, then you must quantify that cost reduction and provide a way to measure it.

Some consultants argue that it's too difficult to quantify the value of a consulting project in advance. But those who take the time to nail down that value will encounter less price resistance from clients, especially if the value-to-fee ratio is high.

Every project has potential, measurable benefits or value. Of course, some values are easier to measure than others. To orient clients in the discussion of what your services are worth, consider the possible drivers of consulting value below.

Drivers of Consulting Value

Consultants Can Help Clients…

Increase	Reduce	Improve	Create
Revenue	Costs	Productivity	Strategy
Profit	Time/effort	Processes	Systems
Growth	Complaints	Service	Processes
Value	Risk	Information	Business
Retention	Turnover	Morale	Products
ROI or ROA	Conflict	Reputation	Services
Efficiency	Paperwork	Skills	Brand
Visibility		Loyalty
		Quality

Once you have articulated project benefits, figure out, in conjunction with your client, what the proposed changes are worth. That becomes the basis for your fee. For example, reducing employee turnover by 20% might reduce recruiting, hiring, and training costs by a similar percentage. Find out what that would be.

You might help clients improve the quality of their products, which should result in fewer complaints and returns and a lower cost of stocking merchandise. If you improve morale among a client's staff, managers could spend less time in meetings and more time running the business. What is it worth to have motivated workers instead of absences, or to improve poor work habits that are due to low morale?

Quantify all benefits that are relevant to a project, and confirm those numbers with the client. That information provides the crucial context for you and your client to assess your proposed fees.

Once you've agreed with the client on value, you can use any number of pricing methods, from contingency billing to fixed fee to pure value-based billing. But most importantly, you'll have an opportunity to shake off the shackles of the hourly rate.

Hourly Rates—Confusing Effort with Results

On one of my very first consulting assignments, I neglected to regularly back up data on my computer and lost an elaborate analysis in a sudden power failure. I bemoaned my lost hours and valuable work to the project manager but, as you might expect, got little sympathy. I did get some good advice though: Never confuse effort with results.

I flashed on that advice recently as I was sitting across the table from a client who asked the inevitable question, “What’s the hourly rate for the people you are proposing for this project?” That led us to discuss if the proposed consultants were “worth” their hourly rate. Sound familiar?

Way too often, such conversations degenerate into how the client can monitor and limit hours—all in an effort to keep costs down—not on how to achieve results.

You can’t blame clients. The hourly rate is the gold standard for pricing in the industry. For decades, professional service providers have trained clients to expect it, and it’s now used extensively to compare consultants.

It’s time to dump the hourly rate once and for all.

To begin with, the hourly rate is a totally bogus number. It’s computed using very broad (and sometimes flawed) assumptions about a firm’s costs, volume and profit. And, many consultants toss those assumptions out the window and discount their hourly rates when they believe doing so will improve their chances of winning a project.

And then there’s the matter of results. You probably know the urban legend about the consultant who was asked to help a client restart a machine that had died and caused a halt in production for a manufacturing plant. The consultant eyed the machine from all angles, circled it twice, and whacked it three times with the client’s rubber hammer. The machine sprang back to life, and the consultant left after fifteen minutes of work.

But, the client was outraged with the consultant’s high-priced invoice. “We could have swatted that machine three times without you.” he yelled. The consultant’s predictable reply was, “Yes, but you didn’t know where to swat it, and that’s why you called me.”

By charging a client for time alone, you completely undermine the expertise you’ve spent years building, and you limit the profit you can justifiably earn. Dozens of pricing alternatives exist that don’t rely on the hourly rate. Look for alternatives that lead to discussions with clients about the outcomes they want to achieve.

When pricing your next project, think results, not effort.